DISH Network Corp (DISH) 2019 Q4 法說會逐字稿

Good day, and welcome to the DISH Network Corporation Q4 and Year-end 2019 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jason Kiser. Please go ahead, sir.

Great. Thank you, Ashley. Thanks for joining us, everybody. I'm joined today by Charlie Ergen, our Chairman; Tom Cullen, the EVP of Corporate Development; Erik Carlson, our CEO; Brian Neylon, President; Warren Schlichting, President of Sling; Paul Orban, our CFO; John Swieringa, our COO; and Tim Messner, our General Counsel. And for the first time, we're going to be having Marc Rouanne, our Chief Network Officer for

Wireless; and Stephen Bye, our Chief Commercial Officer for Wireless, joining us.

I'll turn it over to Tim to do the safe harbor, and then Erik and Paul has some prepared remarks to go through.

All right. Thanks, Jason. Good morning. Statements we make during this call that are not statements of historical fact constitute forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from historical results and/or from our forecast.

We assume no responsibility for updating forward-looking statements. For more information, please refer to the risks, uncertainties and other factors discussed in our SEC filings.

As part of the process for Auction 103, we filed an application to potentially participate as a bidder. Because of the FCC's anti-collusion rules, we're not able to discuss what, if any, spectrum resources we bid on, and we won't be answering any questions on that auction on today's call.

With that, I'd like to turn it over to Erik Carlson, our CEO.

Thank you, Tim, and welcome, everyone. Well, as always, never a dull moment here. And of course, the big development with Federal Judge Victor Marrero's decision last week in favor of the Sprint-T-Mobile merger. So for us, it's a key step forward as we look to acquire Boost Mobile from Sprint and activate the MVNO agreement with [DISH] and T-Mobile.

As I expect most of you know, there remain a few hurdles between here and deal certainty, notably California PUC approval and fulfillment (inaudible) requirement. But we're taking appropriate measures, assuming the deal closes and have teams working to ensure a smooth on-boarding of the Boost business, including its dedicated employees and retail partners and a seamless transition for servicing the Boost customers.

Since our wireless announcement last July, we've had team members from all over the business really kick into overdrive to stay -- to prepare for our entry into the retail wireless space and to stay on top of the day-to-day business. And I want to thank the entire team for their extra effort and focus. I'm confident that our preparations will serve us well as we move towards deal close and continue our build-out efforts.

As ever, our goal is to spur competition and to promote America's leadership in 5G. Charlie and Tom are here to address not just our entry into retail wireless, but progress on our 5G broadband networking.

A few brief observations on the quarter before I turn it over to Paul. First on the DISH TV side, we remain dedicated to pursuing the right customer in the right geography and delivering outstanding service, technology and value. It's a strategy that has been yielding results for us over the longer term, and I'm pleased with the direction of our overall acquisition trends and the stability of the subscriber base.

In the quarter, we saw 100,000 net subscriber loss for DISH. Looking back to the year-ago period, we lost 334,000 net subscribers. So look, it's not quite an apples-to-apples comparison. We're facing a different set of programming challenges last year than we are now. That said, I do believe that this past quarter's results revealed our continued focus from Brian's team and operational discipline with regard to acquisition and retention.

So in addition to a right customer, right geography philosophy, I think you can credit our continued investment in the Hopper platform for the relative stability of our user base. Two examples in the quarter, we announced integrations of Amazon Prime, as an app on the Hopper and the Google Nest Hello Video Doorbell app to the Hopper platform. These kinds of improvements really underscore the value that we work every day to deliver across the business for DISH TV.

On the Sling TV side of the house, we continued a disciplined approach to acquisition, pricing and delivery of overall value. While we saw an annual net sub growth of 174,000, Sling did lose 94,000 customers in the quarter compared to a net gain of 47,000 in the fourth quarter last year. A few points on this to consider. Obviously, the streaming ecosystem is changing quite a bit. There is the dynamics of the broader OTT market change late last year with the wind down of Sony Vu and the introduction of additional streaming providers that launched with aggressive commercial offers.

Our goal at Sling is to drive tight focus on user experience, its overall value in its place in the streaming ecosystem. And now Sling is an excellent stand-alone solution for many but our -- and our focus on best of live makes it really a perfect complement for the growing crowd of SVOD players. Recognize that we have to lead in customer experience, we're dedicated to offering the most flexibility at the best price point.

And you can see this in some of the added features and functionality we brought to the service in the fourth quarter, including expanded live news offerings that included the launch of Fox News and the Sling Blue; free cloud DVR that provides a consistent experience for all TV subscribers, including folks in both Blue and Orange services; and updated channel lineups in both the Blue and the Orange services.

Look, we see Sling well positioned to perform in the dynamic marketplace, but we also need to execute. So before we get to Q&A, I'd like to turn over to Paul Orban, our CFO, for a few brief remarks about the financials for the quarter.

Thank you, Erik. Our fourth quarter DISH gross adds are up roughly 40% year-over-year, and we continue to activate high-quality subscribers. However, Sling lost subscribers for the first time ever due to increased competition and disconnects related to the football season ending.

And looking at the P&L, our operating income and EBITDA for the quarter are both up compared to last year, primarily due to improved margins, lower satellite and transmission expenses, partially offset by higher SAC. Our revenue declined due to a lower subscriber base, which was partially offset by higher pay-TV ARPU. The increase in pay-TV ARPU was driven by DISH TV's Q1 2019 price increase and our continued focus on acquiring and retaining high-quality subscribers. In addition, Sling benefited from increased advertising revenue.

Our subscriber margins for the quarter were positively impacted by our higher-quality subscribers and reduced costs related to channel removals, including regional sports. However, we continue to face long-term pressure from programmers who want higher and higher rates, even in the face of declining viewership.

DISH TV SAC is up this quarter due to increased subscriber activations. However, the cost per activation decreased slightly to $850 from $861 year-over-year.

We continue to supply a greater percentage of our new customers with Hopper receivers. This drives additional hardware and installation costs, but we believe offering our best equipment influences customer loyalty over the long term. It delivers a better user experience, which has improved our churn rate.

Satellite and transmission expense decreased in the fourth quarter versus last year as a result of the satellites we acquired from EchoStar during Q3. As a reminder, these satellites are now capitalized on our balance sheet and are being depreciated over their remaining useful lives. We no longer make cash payments to EchoStar for their use of these satellites, which positively impacts both EBITDA and free cash flow.

G&A expenses were up this quarter as a result of cost to support our wireless initiatives and legal fees. Despite increases in wireless CapEx and SAC, this generated $1.18 billion in free cash flow in 2019. During the fourth quarter, we completed the rights offering, raising approximately $1 billion and ended the fourth quarter with approximately $2.9 billion of cash and marketable securities. This gives us the ability to purchase Boost for $1.4 billion, redeem the $1.1 billion debt maturity in May and fund our wireless initiatives for 2020 with cash on hand.

Our 2020 wireless expenditures are currently expected to be between $250 million and $500 million. As we've said before, we will be opportunistic in accessing the capital markets. Finally, I echo Erik in saying how excited we are to begin serving Boost customers. For the last few months, we've been working with the Boost team preparing for the close and look forward to them joining the DISH family.

With that, I'll turn it over for questions. Operator?

(Operator Instructions) We will now take our first question from Doug Mitchelson of Credit Suisse.

Charlie, there's been a lot of interest as to whether DISH would announce at some point soon an anchor tenant or a founding partner for your 5G wireless network build-out, in particular, discussions with the like of an Amazon or other tech platform. Is there any context on the topic you're willing to share with investors at this point?

And it might be helpful to understand just your thinking on time frames, whether it's for anchor tenants or raising financing. It seems like you have a lot of flexibility now. And all this assumes a T-Mobile-Sprint closure. Any thoughts on that would be helpful. And I've got a couple of quick follow-ups on the pay-TV business.

First, we do think that the Sprint-T-Mobile closes, so at this point, we're highly confident of that. Nothing's really changed in terms of what our strategy is. We look at strategic partnerships in a number of ways, and not all of those are financial. But certainly we're -- the infrastructure exists and we don't have to rebuild it and we can partner with somebody who's got infrastructure things in place. We'd rather do that if nobody wants to -- can't strike something that makes sense for all parties. And obviously, we're prepared to build out some of those things ourselves.

And in terms of anybody that we look at strategically, we -- the first step is that they've got to be aligned on our view -- on our vision of where wireless can go and we have a pretty solid view of where we think wireless can go. It's materially different in terms of architecture of where networks are today. And it's very similar to when we started the digital satellite. We launched our own satellites. We went 100% digital. The world at that point was predominantly analog and the entire cable industry was analog. It was 1995. It was 2009 before the broadcasters went digital. So the same kind of thing is in place today.

And again, I just think that our company is not the first time we started working on wireless and we've been at it for a long period of time. And we've been putting a lot of building blocks in place for it. And we know we have a different way to build a network. It's a lot less expensive to build a network. It's a lot less expensive to operate the network. There's a lot less people because of automation and the fact that we can -- our network is primarily going to be software and in the cloud versus people's hardware networks today.

The fact that we can embrace open standards, it's just a different model. So as we put those things together, obviously, we'll share some of those things with The Street. But today's focus, and maybe I'd let Tom talk about where today's focus is, and the short answer is you're not going to get a lot of information on strategic partnerships and all that during the call, which you guys always want, but you'll know whenever it's necessary for you to know.

Yes, Doug, it's Tom. Obviously, in the summer, when we announced the transaction, there was an increase in interest from prospective partners, and then that has ramped further with the judges order last week. It's probably a shorter list of who we're not talking to. But we don't feel any particular urgency around striking a strategic partnership at this point. Our focus, as Erik said, is prepare to integrate the Boost business so we're operational Day 1. The second focus is to finalize the architecture of the network, which Marc and Stephen have been working on for several months and we're encouraged by the progress. Third area of focus is to -- we have integration work occurring right now in multiple labs around the country with various sets of vendors. And so the third area will be to narrow that down and move into contract finalization with key vendors. And then the fourth area is to plan deployments.

We're -- we want to start deploying later in 2020. We're very cognizant of the FCC obligations that we've made, and we actually look forward to beating them because once we unleash nearly 100 megahertz of spectrum on a market-by-market basis, we're going to enjoy owner economics, where our cost per gig will be so much lower than both the MVNO and the incumbents that we'll be incented to price aggressively and compete aggressively.

That's all very helpful. The quick question on Sling. Looking at the fourth quarter, should we be extrapolating full year results as we look forward for Sling? Or does the fourth quarter suggest any kind of change in strategy or growth impediments that we should be considering?

Look, I think there are -- this is Warren. By the way, I think there are a lot of different influences in the last half of 2019, so I think extrapolating might be dangerous. We had a price increase. We shifted our channel lineup so it doesn't include RSNs anymore. So we like our position. We like our skinny bundle. We may not be everything to everybody, but we like where we are and we're taking a disciplined approach.

We will now take our next question from Michael Rollins of Citi.

A couple of questions. First, I was wondering if you could expand a bit more on the cloud-native solution for the wireless business, how that differentiates the cost and how that might differentiate the customer experience? And then also during your testimony that was, I guess, is the redacted transcript, the parts that were not redacted referred to the business model embracing bundling. And I was wondering if you could expand upon what are the types of bundles that you could foresee for the wireless business.

Yes. On the first question -- this is Marc Rouanne, on the architecture. So the cloud native, first of all, we have been testing and looking at the cloud and all the software that we are going to use is cloud native. Cloud native means you can put it in the cloud or you can put it on-premise or where you want. It will scale automatically. It will be adapted to the different usage.

Now why is there a difference for the end user? Actually, when you're cloud native in -- within seconds, you can adapt to a new service, right? Because you can move the software, you can adapt it. You can configure it. And a good way to think of it is the catalog of services you see on AWS or Azure, they do that for the data centers. We will have the same type of native software catalog of services that you can stitch together and apply to any use case, right?

So the capability to differentiate this is very big. The other thing is that, of course, the costs are different because now you're in data centers, you are on old purpose hardware. You are using the open server stacks. So that's what makes a difference: agility, speed and adapting to the use case.

And this is Charlie. I can't remember the question -- the question was something about bundling and bundling what?

Bundling around your customer.

What is bundling around customer out there, right? And look, I think -- I'm not sure exactly. I don't remember exactly all my testimony. But from a bundling perspective, we have a chance to have more customer relationships than we do today. Obviously, we move out of more rural-centric business to a more urban business. And so a variety -- obviously, video is a big part of what we do, but we also have in-home services. We also are able to connect people in a different way. So there's a number of things we'll be able to do.

I mean, the big picture is that I think DISH is on a growth -- is now -- we put a lot of investment over the last few years to put ourselves in a position that has linear TV declines. We had another engine to grow the business and we're now in that situation.

So it's very similar to -- again, it's very similar. We're in the big DISH business and analog business, and we saw that business declining 4 or 5 years before anybody else, and we were prepared with digital, digital broadcasting when the time came, and we were able to grow our business exponentially over where it had been before. And I think we're in a similar situation where we're now, we're able to grow our business and the wireless side of it, but it was included growth in video because a lot of the traffic that will go across our network. In fact, the majority of the traffic across our network will probably be video.

We will now take our next question from John Hodulik of UBS.

Okay. Great. First of all, is there any more detail you can give us on your go-to-market strategy, in either the prepaid market or postpaid markets in terms of pricing, distribution, when we should expect to see you guys to enter those markets?

And then as part of the deal, you have access to 20,000 towers and a bunch of retail locations for Sprint. I was wondering if you've done like much due diligence on those sites? And is this a big benefit for you? And do you expect to be utilizing any of these assets going forward?

We're not ready to disclose our go-to-market strategy. Obviously, why -- we're not that -- we're not very smart but we're not that stupid to disclose that. The -- obviously, the towers and the stores are potentially positives. Particularly, the towers in the sense that it frees up -- T-Mobile is not allowed to squat on the towers and obviously, towers are a big part of things that we're going to need. And so they're required to give us notice when they're going to vacate a tower. That probably helps on the margin on our build out and perhaps reduces some of our costs.

Decommissioning of Sprint sites will likely make available RAD centers that are at attractive heights to us. So there's a rolling forecast that they have to provide to us as to when they intend to vacate a tower.

I think the big picture here is that because we have use of the T-Mobile network for 7 years, along with some of the towers and so forth, we have a pretty big safety net. It gives Marc and Stephen a little bit more leeway in terms of how we build our network. We can take a few more chances. We can experiment a little bit. We can use some providers that maybe aren't household names that have done great things in the lab or great things in other parts of the world but really haven't been factors or household names in the United States. It gives us a lot of they'll do that.

One of the things that maybe Marc wants to talk about. We have made the determined architecture that we will be an ORAN-compatible network with a [7-2] split. So that's something that some of the big guys don't do -- none of the incumbents do in the United States today. But that is, without question, the way a modern network should be architected.

And once you architect it that way, it opens up a whole different set of range of options, which are important to this country, right? When you start looking at some of the security concerns of this country with Chinese vendors and things like that, the way to compete is to build a better network, not to build the same network using old technology. I don't know if you want to comment on that a little bit, Marc?

Yes. So we've been working on ORAN for the last few months and now we see that the market is getting ready for us, and actually, for other operators as well. That's the big trend in the industry. Everybody is working towards ORAN.

Now you may wonder what is ORAN? It's very simple. You put something on top of the mast, that's your radio, and then you can do whatever you want on the rest of the network. It will never impact again your radio. So you can choose the vendors, but you can also have long-term sustainability of your radio deployments. Whereas today, if you touch the radio, you touch the tower of the site, you touch the network. And that's why it's so lengthy to bring new stuff in the existing networks.

We won't have that problem. Once we put a radio there, we do one climb, and we can upgrade, we can change the software as fast as we want.

Great. Very helpful. One last question. Any progress, Charlie, on the negotiations with T-Mobile about leasing them the 600 megahertz? And is that a potential source of cash going forward?

You want to do that?

No. We have no current update on that, that we can provide.

We will now take our next question from Walter Piecyk of LightShed.

It's Rich Greenfield for Walt. He wanted me to ask a couple of Wireless questions and then I got a media question. Lead first on Wireless. Charlie, you had said you'd be opportunistic in accessing the capital markets. I think if we go back to your core testimony, you were asked about a $1 billion loan from SoftBank, which would provide working capital because they can issue at a lower rate. Is that still available to you?

SoftBank has made a commitment to us to assist in a small part of a financing of up to $1 billion, and so yes, that is available to us. The net effect of that is it just -- it would reduce our -- it would reduce our interest cost lower than otherwise would be. But it's by all means -- it's not $1 billion -- it's not $1 billion of capital for us. We've still got to pay it back, but it does reduce our -- would reduce our interest expense.

Then on the media side of the house, your satellite sub losses seem pretty minimal, given the amount of programming or in terms of regional sports networks that you dropped. We continue to calculate your saving over $400 million a year on not having those RSNs. You've lost, at most, $30 million to $40 million, it looks like, of EBITDA from the sub losses the last couple of quarters.

Is there any reason to think that this wasn't a great decision? I mean, it just keeps looking more and more like you should be not in the RSN business unless they're on a tier, I mean, giving you a lot of flexibility of how you tier them going forward without minimums. Is there any other way to look at this? And does retrans with Sinclair ultimately change this?

And then just the last question, kind of a big picture. As you think about DTV and DISH, it seems like they're in increased trouble on the DIRECTV side. Any thoughts you could share given the government's, I guess, amenability to large-scale transactions? Does this make you rethink about DISH and DIRECTV at some point?

Well, I mean, a couple of things. I'll start with DISH, DIRECTV. Probably inevitable that those 2 should go together just because the growth in TV is not coming from linear. Satellite TV providers is coming from huge programmers and trillion-dollar companies. So I think the regulatory environment, usually, it's behind the marketplace, but I think that becomes increasingly likely that, that makes logical sense. Having said that, obviously, there still could be regulatory issues there and I'd love to see how that all develops, but that to me seems -- and maybe each company only has 2 subscribers when you put them together, but eventually, those 2 are probably going to -- that's going to make some sense because you just can't -- you can't swim upstream against a real tide of the over-the-top big players.

I forgot what the first question was -- some regional sports. Look, everything we do here is somewhat mathematical in the sense that we have real data for a long period of time what our customers watch. And I don't think it takes real rocket science to see when customers watch and how much they watch, what the value of a programming is. And the marketplace has been historical, and that somebody got a price and so their typical negotiating tactic is, we were getting paid X, we now want X plus for the next contract. And it's always X plus, and that can be, as you see in the marketplace, that can be in the high single digits in terms of price increases that people want.

What we see is the exact opposite, which is people are watching less of many people's programmers. And we would say that your price should go down if people are watching less. And one of the big outliers was regional sports in terms of the amount of money they charge and collect versus the amount of people who actually view them. So we would love to do a deal with regional sports. We really like Sinclair as a company. We would -- it was an unfortunate circumstance that Sinclair did not own the regional sports when our contract was up.

And then once somebody leaves our network that wants regional sports, it doesn't make sense to burden the -- we have less people today on our network. We still have some people that might want to watch regional sports, but it's a fraction of what it was last August when they came down. So the programmers have a hard time understanding that once somebody leaves our network, there's no reason to put something back and tax the rest of the people because the people who are -- the people who really watch a channel leave us because they have alternatives.

So it's -- the math was clear that the kind of offer we had from the Disney folks at the time that our contract was up was not even close to something that made sense for us. So there's a lot of times in business was really easy decisions, and some you've got to think about, but this was an easy one and that's where we are today. And obviously, Sinclair now owns it. We've had a great relationship for Sinclair for a long period of time. But whether you can put Humpty Dumpty back together again remains an open question.

Seems like the math on that would be very hard.

The math actually isn't that hard. It's just that the math is different for us now because we have less, right? And they have other customers and other contracts. And so they -- so it gets -- but the math is easy. We know what it's worth. And it's worth less today than it was last year.

We will now take our next question from Phil Cusick of JPMorgan.

I guess, starting, Marc and Stephen have come on since the last call, and Marc started with this around architecture already. But can you or they expand on any other evolutions to the network strategy since they came on board?

Yes. So we've talked about ORAN. I think this is known now. We have talked about cloud native. Actually, another very important thing is automation. The way -- we are in the labs today and the way we test is -- we're not testing fancy 3GPP features, we're testing automation from ground up. We have big dreams in automation where we have a touchless network where everything is happening by the milliseconds or the second with what is called closed-loop automation. So for example, you lose a site, the rest of the sites are coping for that site automatically. And it's across the board, right?

If you want to slice, you have to have a network that is automated. And that's a big differentiator in the future for us compared to existing networks that are not automated. They are -- and if you want to create a slice in an existing 4G network or a new 5G add-on, it's done manually. You provision, you script. We want the network to do it dynamically. So that's the next big thing, and we have had good traction on automation, to be honest, much better than we expected.

Another one is that we think consumption. We're not building a network and then thinking, "Oh, how do we sell it?" Actually, we're starting from all the use cases that have been studied for the last 3 to 5 years when 5G was defined, and we're looking -- how would we consume the network based on those health care, smart cities, transport use cases? And how do we automate the slices based on that?

So it's a consumption-driven architecture. And again, we see a lot of traction in the U.S. ecosystem because a lot of people have been doing that for new services. Use cases that everybody knows like the Airbnb, the Uber, we just use the same techniques. So that's what has changed.

The last thing is on open source. Everybody knows about -- has heard the Kubernetes containers. These are a bit technical. But what is interesting is that we can leverage the U.S. ecosystem around open source. And a lot of the things that the Nokia Ericsson had to build themselves is now completely available to us.

And more recently, a lot of work has started on the hardware side rounded up from security. When we talk to the enterprises, what do they want? They want to manage their network themselves, but they also want to manage their security. And we see ways in the U.S. native ecosystem to have this grounded-up security all the way from the hardware and all the way into the software stacks. So that's another big thing that will differentiate us. Security will be native.

And Charlie, I might -- go ahead, please. I was just going to say, leaving the current auction side, obviously, do you see a need to buy more mid-band as CBRS and C-band come available in the next year?

Yes. We have normally participate -- I think every auction. We started with the third auction that was ever held 25 years ago. We typically -- we've always participated. We usually don't win much, if anything. I don't see that changing.

I'm sorry, I interrupted you.

Anyway, I -- I did not get to answer that. The only other thing I was going to add on Marc -- Marc was talking a lot about the enterprise business, which is a different use case of our network. It's a big part of what networks can do that's beyond just the consumer. So I think that what Marc is architecting is a network that the consumer will be a big slice of that network and that's what Boost and everything that Boost does in the future, particularly in postpaid, will be a big slide to that network.

But that -- part of that network could also -- can be used by the enterprise customers in a way that current networks really can't accommodate. And so that's another open. That's not probably in anybody's model today in terms of how we'd use it and how we'll generate revenue from the network. But it's certainly -- certainly, the network is designed to be able to accommodate that.

And we -- the only thing -- I guess, I'd say it this way. Almost every Fortune 500 company's Board of Directors is asking their management what is their 5G strategy? And part of that strategy, if they were omniscient, would be potentially the kind of thing we're building.

So I just think we're a different animal. And I'll say one more thing. A lot of analysts get confused with incumbent networks and the cost of building those networks in the past and the cost of maintaining those networks, the OpEx that you have for networks, the -- some big incumbents today spend as much money in a year or 2 just to maintain their networks as we'll spend to build the network. And the reason is that the legacy is so hard to -- and so complex and so -- and not automated. So you need a lot of people to do it. And you have 2G, 3G and 4G that you have to maintain while you -- you have to be backward compatible to everything.

So the cost of this is astronomical. Compared to more modern network, where you see in the IT world, you don't have thousands of people in the data center anymore. You probably can count -- in a big data center today, you'd probably count on one hand the number of employees there. In a modern architecture with automation, we just need a lot less people to run the network. Then you're starting to see that in other -- when you've got a clean sheet of paper and you have automation, you can do that. So our costs are materially less.

That's helpful. One quick follow-up for Paul, if I can. Can you give us an idea of what the incoming Boost EBITDA run rate is going to look like?

Well, we don't really disclose that. You could probably take a look at what Tracfone does and what they do from a subscriber perspective to get an idea of what it may look like.

We will now take our next question from Kannan Venkateshwar of Barclays.

Charlie, just from a business model perspective, when you look at wireless longer term, when you think about all the alternatives available, you laid out enterprise right now. I mean, there's also the possibility of going wholesale and licensing capacity to third parties and then there is, of course, the retail business. How do you see the mix evolving in the end state? And do you think retail will be as big a part of your business as it is for the traditional telcos? Or will that be a much smaller fraction of your overall wireless business potentially in the end state?

And secondly, from a capital perspective, as you go through the process of raising more capital to fund the build-out, do you have any thoughts on capital structure? Would there be a big equity component as you go down this path of raising capital? If you could help us with that, that would be very useful.

Well, obviously, we're starting to -- from the retail side of the business, we're starting with a very low base with approximately 9 million Boost customers. So obviously, versus the 100-plus million that the other 3 incumbents will have. So we're going to be very low base there. Having said that, we think that, that's a -- there's some opportunity in that marketplace and one size doesn't fit all. And with a lower cost structure and flexibility in how we do it, we think there's things we can do to grow that business. But obviously, we're not going to be -- obviously, we're going to be very, very, very disciplined for a long period of time there.

In terms of capital structure, obviously, one could certainly foresee that our capital structure could be a blend of equity and debt, depending on where the marketplace is there and depending on how comfortable we are at their business. We don't have all the answers to everything we're going to do. But we have 39 years of experience and a management team that knows how to deal with uncertainty and knows how to take advantage of opportunities that the marketplace presents. And we're going to go where we can be profitable and where we can -- where we have strengths. And maybe our opponents have some weaknesses, and we -- I mean, we're really good at that. I mean, that's a core basic skill this company has, to be able to find opportunities and be creative and we haven't lost that. We've only enhanced that over the years.

So it's never -- every company has challenges. Every company doesn't have a perfect crystal ball. But this company is really, really good at dealing with uncertainty and opportunity and taking advantage of it.

We will now take our next question from David Barden of Bank of America.

Charlie, maybe a little bit of follow-up on that prior question. It came up at the trial that absent a partner, that there were several large banks that would be willing to maybe step up and help finance the project. What would that look like in terms of collateral? Would that kind of be collateralized by the spectrum side of things, even though the FCC has a buildout-related foreclosure rate? Or where would it have to sit in the organization if you were to go to the banks to help fund this?

And then a follow-up question would be, if and when you do go to the financial industry to try to get this financing, kind of we only have really one number in the business plan today, which is $10 billion to build the network. Is there any other kind of number or framework or cumulative amount of operating capital losses, target market shares? Anything that you could kind of give so that The Street can kind of think about what this business model really might look like.

Yes. I mean, I think, obviously, our -- we wouldn't expect to be raising capital at some kind of detail in the $10 billion range without some kind of detail about where that all goes and so forth. So obviously, we do that. But the business plan is going to be an extraordinary business plan for the future for those people who think long term. And obviously, there are still a few long-term investors left, not many but a few. And this is certainly to raise that kind of capital, you'll have more meat on the bone in terms of the numbers. But the model will probably look better than most people have speculated, and the costs are probably materially less than many people have speculated.

So it's just a big paradigm shift. It's really the, again, going from analog to digital was the one that we capitalized a long time ago, and this one's every bit as big or bigger in terms of virtualizing the network against where legacy companies have a really, really hard time to get there in the short run. They'll get there, certainly, in the long run, but they have a tough time in the short run to do that.

Charlie, just as a follow-up, you pointed us to maybe Tracfone as a template for maybe what the prepaid business that you're inheriting might look like. Would you point us to Rakuten and kind of look at their business plan, their capital investment timing, their kind of subscriber goals and such as kind of a template for what you think you can do here in the U.S.? Or are you doing something significantly different than what they're trying to do in Japan?

With Tracfone, I'd say, just clearly, obviously, Tracfone's not a hugely profitable business. So I wouldn't expect that Boost is a hugely profitable business, but the part that could be -- shouldn't be a huge problem because we have an NPL agreement for 7 years with T-Mobile's better and better network as they build it out. We have an opportunity to grow that business, particularly since we have user economics coming on the back end if we can forward price.

Owner economics.

I mean, owner economics that we can forward price. So that's a pretty unique position to be in. We'll probably have to go into more detail on the conference call on that, but that's a unique position to be in.

And then Rakuten is important in the sense that we've learned a lot from them, and they're really the first company to start embracing kind of an ORAN open architecture system, and it's been pretty incredible the amount of progress they've made in 18 months since they first announced what they were going to do. But their actual -- their start -- I think the turn on is sometime in the next few months, so it's not for -- it's 3 months away. But we've learned a lot from them. There's a few things that we're going to do differently.

The technology is advanced, so we get the advantage of 18 more months of technology that's advanced since they had to make some of their decisions. Some of our decisions might be the same as they're making, but it gives us a really good template to say what did they do right? What -- where is the marketplace advanced from where they started working on? And how do we use those things to our advantage? And so it's always a little easier to be the second person, not the first person. They're going to get a lot more arrows in their back than, hopefully, we will. But I expect they'll be very successful in what they're doing, and they certainly are designing the right kind of network for the future.

But it's 4G and so the big thing we get to do is to start with 5G. And we started a lot more spectrum than they do, too.

And while there are similarities, clearly, the 2 markets are vastly different.

Our next question is from Craig Moffett of MoffettNathanson.

Could you guys comment on the timing of capital investments? It looks like you lowered your CapEx a little bit for guidance for this year. I expect some of that may just be the timing of when the deal is closing. But now that you've got some clarity about the length of the runway for build-out requirements and the end of the T-Mobile wholesale agreement, how do you think about when you want to get your -- make your network bets and start making the larger capital investments to get your network build?

So you're right, we -- I mean, we didn't really lower it. I mean, I think we'd always talked about $1 billion in '19, (inaudible) been to IT and then into 2020. What were you going to say, Paul?

Yes. As we'd say, the original disclosure was $500 million to $1 billion, and that included all spend in '19 and in '20. We just modified it to $250 million to $500 million for 2020. So if you take into consideration what we spent in 2019, we're within that range.

But the big thing, Craig, is that we have a lot of flexibility. So on your timing question, it will be a lot -- the first thing we're doing is RF planning and making sure we get our towers and our permitting. That's kind of a long-haul intent. And so there's not a lot to build this year because we start -- we've got to get those permits and zoning and structural and all the things, all the civil works that you need to do. And so we have the flexibility to do that.

The second thing is that from a hardware perspective and a software perspective, some of the things that we're doing is our -- they're in production, but they're not off-the-shelf today so we have to wait for those things. But with the T-Mobile MVNO deal, we got a lot of flexibility in terms of timing that we do that. The only flexibility we don't have, obviously, is in 2022. We've got to be in 20% -- per our FCC commitment, we've got to cover 20% of the population. So we could -- we'll certainly have all our zoning and permitting done for far greater than that, and then we'll build accordingly depending on what the state of hardware-software is.

So again, the good news is we have pretty big safety net today, and we can make -- we can now make mistakes and still survive some of our mistakes. We're certainly working with the net. Sometimes in our company, we haven't worked without -- we haven't had a net to work with. So I'm sleeping a little bit better. When you go up on a Chinese rocket, there's not much of a net. And today, we've got 7 years of a pretty good net.

And so I don't see big risk there today. But obviously, we've got to go execute. And we're not going to convince anybody until we -- until you see our first market, and you can touch it and feel it and see why it's different. And that -- we'll get down within that -- hopefully by the end of the year, but certainly within next year, we'll get that done.

But am I right? It sounds like reading between the lines of your answer that barring the 2022 commitments for the build-out at the FCC, that your interests are -- it makes more sense to back-end load capital investment, if you can. Is that a fair interpretation of what you just said?

Every month that goes by, our costs go down and the technology is a little bit better. So when you have a paradigm shift in technology, it becomes a sweet spot of how you exercise your decisions in terms of your capital expenditure. We don't know enough to know exactly when the -- where that sweet spot is. My gut feel is we're going to use Release 16 at 3GPP, that's supposed to be out in June. That might slip because of the virus, and all lots of that. So that could slip a little bit.

And then you've got to get into the equipment. So as soon as Release 16 is readily available in the equipment and software, then that's probably the sweet spot for us. And if that's -- is that this time next year? Probably. And then we go pretty quick. And so I think what you're going to see is the CapEx being a pretty steady run rate sometime next year, but it's not very big this year.

And Craig, as you know, we have other commitments beyond 2022. So it's pretty -- there's a cadence to the build-out, both in '23 and then there's additional build-outs in '25 and '26.

But the big difference is that we will build -- we'll focus a lot more in city by city. So there's obviously going to be some cities that are more interested in getting 5G quickly. And those cities that want to work with us will probably get first priority. And then, obviously, when we build out a city, we can have owner economics there. So we don't have to build -- we're probably not going to build 2 towers in every city. We'll build that city-by-city and complete a city before we move to the next city.

Obviously, we can build multiple cities at the same time, but that's a bit of a strategy that we'll have.

Operator, we have time for one more from the analyst community before we move to media.

(Operator Instructions) Our final analyst question comes from Brett Feldman of Goldman Sachs.

Just 2, if you don't mind. First one is pretty simple. What's your latest thoughts on how quickly you'll be able to close on the Boost transaction? And then second, Charlie, you talk about the opportunity to sell your network capabilities into enterprises. It seems like one of the keys to selling enterprises is distribution. All these big customers have an AT&T rep calling on them. They have a Verizon rep calling on them. They might even have a Sprint rep calling on them.

How do you intend to access those types of decision makers? And is that a natural example of where partnerships could be an important part of your strategy going forward?

Yes, Brett. On closing the Boost, we're not required to close until we can provision any new Boost customer on the T-Mo network. I think -- is this public, technically? How many days that is after the 29th?

Anyway, that should be some -- it won't be simultaneously with Boost, I mean, with the T-Mo/Sprint merging because then they have to -- once they're merged, it takes them just a bit of time to make it where we can provision. But they are under a strict time line for their consent decree, and it's not a lot of time before we close on that. I think that might be public, but I don't want to say it if it's not.

And then on the enterprise businesses, we would follow the normal philosophy we have that if there exist, as an example, an enterprise sales force that we don't have to recreate and we can do something with that sales force, then we would do that. If nobody that has an enterprise sales force wants to deal with us, we'll build it. And we're prepared to go either way. But our first choice would be to work with somebody who already has enterprise field force in place.

And the good news is that when our competition comes in to sell enterprise business, we'll have a better product. So it doesn't mean we'll get all the business, but it means we'll get our fair share.

We will now take questions from members of the media. (Operator Instructions) Our first media question comes from Scott Moritz of Bloomberg.

Charlie, as you look ahead to the closure of the Spring/T-Mo deal and your entry into the wireless marketplace, what phones are you going to be able to sell? Have you talked to the 2 top phone makers? Would you be able to have the latest iPhone and Samsung phones?

It's John Swieringa. I'll take that one. Obviously, since we announced the deal back in July, we've been in close contact with all the major OEMs. We've got the ability to go direct to what makes sense with them as well as go through continuity agreements through the transition services agreements that we have. And obviously, there's new lineups coming out in 2020, new features and things like that.

We're right in the middle of all those discussions, and we'll be in a position to be competitive at the device level.

So the bottom line is, we will have phones. And that's not a risk to our business.

And there are no further questions at this time. I would now like to hand the call back to our speakers.

Okay. Thank you, operator. I appreciate everybody joining, and we'll talk to you next quarter. Thanks.

Ladies and gentlemen, that concludes the call. Thank you for your participation. You may now disconnect.